Four ETFs Influenced by McDonald's Fourth Quarter Earnings

The world’s largest restaurant chain, McDonald’s Corp. (MCD), reported increases in revenues and net income for the fourth quarter, meeting analyst expectations and giving support to the Consumer Discret Select Sector SPDR (XLY), the iShares Dow Jones US Consumer Services (IYC), the Vanguard Consumer Discretionary (VCR), and the PowerShares Dynamic Food & Beverage (PBJ).

Revenues for the Oak Brook, Illinois-based company jumped 4% to $6.21 billion, of which $4.2 billion were generated through company-operated restaurants and nearly $2 billion from franchise-operated restaurants. Furthermore, total operating income grew by 5% from the prior-year quarter to $1.16 per share helping push earnings year over year up nearly 6%.

Much of McDonald’s success has been driven by the success of its dollar menu meal items and its premium products. According to its quarterly report, further support came from a rise in comparable-store sales across all regions of the world and new menu offerings such as frappes, fruit smoothies, cinnamon rolls, Angus steak wraps, and oatmeal, which drove higher foot traffic in the reported quarter.

Another positive sign of McDonald’s performance was in the 5% rise in global comparable sales during 2010 with positive comparable sales across all geographical segments. In the United States, sales increased 4.4%, in Europe 3.4%, and in Asia/Pacific, Middle East, and Africa (APMEA), a whopping 5.5%.

As for the future of the Golden Arches, the 32,000-plus worldwide locations that sell McDonald’s products are expected to continue to see positive revenue growth and the company as a whole is expected to continue to open new stores as demand for its products remains insatiable, especially in the APMEA region.

Although the outlook for McDonald’s appear to look upbeat, it is equally important to consider the risk factors that could eat away at the company’s bottom line such as increased commodity prices, increased competition from other fast-food-restaurant operators, and macroeconomic forces such as decrease in consumer spending. In fact, commodity prices are expected to remain elevated in the coming year due to supply and demand imbalances, and competitors like Yum Brands (YUM) are focusing on their core businesses to gobble up more market share. Unemployment levels in the developed world, particularly in the US and parts of Europe, remains stubbornly high which could influence consumer spending. All of these are forces that could hinder McDonald’s future.
 

• XLY, which boasts McDonald’s as its top holding at 6.35% of its assets.
• IYC, which allocates 4.86% of its assets to McDonald's.
• VCR, which allocates 5.63% of its assets to McDonald's.
• PBJ, which allocates 4.59% of its assets to McDonald's.

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